Using simple neural networks to analyse firm activity

Characteristically, in economics, the analysis of firm activity is based on a production function that defines a deterministic relationship between factor inputs and firm output. The analysis of the firm as an organisation takes a somewhat different approach. For instance, behavioural economics (for example Simon, 1955; March and Simon, 1958; Cyert and March, 1963), transaction cost theory (Williamson, 1975, 1985) and capabilities approaches (for example Foss and Loasby, 1998; Foss, 2005) emphasise that economic agents have inevitably incomplete information and knowledge and are at most boundedly or limitedly rational. The implication here is that while general principles governing intra-firm interaction can be specified, detailed organisational processes inside the firm are, for practical academic purposes, effectively unobservable. Hence, the usual analytical tools designed to analyse firm behaviour, based on production functions and optimising principles with full information, are in practice an oversimplification of firm activity (Loasby, 1999)

The Choice of Management Practices: What Determines the Design of an Environmental Management System?

This paper examines whether differential incentives exist in the adoption of environmental management practices (EMPs) with varying features that often make up the design of environmental management systems implemented by firms. Estimation of multivariate probit models reveals that greater consumer, regulatory and investor pressures are positively related to the adoption of EMPs that directly enhance a firm's green image. In addition, potential liability costs are positively associated with adopting broad-based EMPs while regulatory pressures are not generally found to have any significant relationship with environmental efforts that improve and address compliance issues. Results also reveal that competitive pressures arising from environmental efforts by rival firms creates stronger incentives for environmental self-regulation than any pressures arising from potential regulatory threats at the industry level.environmental management system, environmental management practice, environmental self-regulation, voluntary adoption, multivariate probit, Environmental Economics and Policy, Q5, L5 , L1 , Q28,

Explaining the diversification discount

Diversified firms trade at a discount relative to similar single-segment firms. We argue in this paper that this observed discount is not per se evidence that diversification destroys value. Firms choose to diversify. Firm characteristics, which make firms diversify might also cause them to be discounted. Not taking into account these firm characteristics might wrongly attribute the observed discount to diversification. Data from the Compustat Industry Segment File from 1978 to 1996 are used to select a sample of single segment and diversifying firms. We use three alternative econometric techniques to control for the endogeneity of the diversification decision. All three methods suggest the presence of self-selection in the decision to diversify and a negative correlation between firm's choice to diversify and firm value. The diversification discount always drops, and sometimes turns into a premium, when we control for the endogeneity of the diversification decision. We do a similar analysis in a sample of refocusing firms. Again, some evidence of self-selection by firms exists and we now find a positive correlation between firm's choice to refocus and firm value. These results consistently suggest the importance of taking the endogeneity of the diversification status into account, in analyzing its effects on firm value.Diversification discount;

Market Power, Multimarket Contact and Pricing: Some Evidence from the US Automobile Market

Multimarket contact is perceived to be one of those factors, which can facilitate and sustain implicit collusive (cooperative) arrangements. This paper attempts to develop new approaches to study the interdependence of firm behaviour across markets, especially in the context of differentiated products industries. I analyse the principle of conducting a test of the mutual forbearance hypothesis, and its application using particular data. The multimarket contact effects are studied within a structural oligopoly model for differentiated products for the US automobile market on the basis of the aggregate product-level data for 2001-2003. Some support has been found that multimarket contact may influence competition in the automobile market and increase the firms' strategic interdependence. This effect is, however, difficult to disentangle from the effect of the market concentration in the US automobile market (dominance of the market by the American Big Three) on the firm behaviour, which could also facilitate collusion. In other words, it is difficult to argue whether coordination is due to market concentration, or due to multimarket contact, or both. Concentration is argued to foster the slack, which is transferred through the multimarket contact. --multimarket contact,collusion,automobile industry,test for non-nested hypothesis,menu test,structural oligopoly models

Offshoring and Immigrant Employment: Firm-level Theory and Evidence

We propose and solve a simple model of firm-level decisions to offshore production stages of lower skill intensity than that of activities that remain in the domestic location. In theory, offshoring is optimal only for the more productive among heterogeneous firms if it entails a fixed cost. In a large sample of Italian firms, offshoring - especially of intermediate production stages - is indeed more prevalent among firms that are larger and more productive, and is predicted by arguably relevant firm-level characteristics. We also document that offshoring decreases the share of unskilled employment in domestic production facilities as well as firms’ propensity to employ immigrant workers, and we discuss the possible determinants and policy implication of the latter finding.

Open strategies and innovation performance

Scholarly interest in the relationship between open strategies and innovation performance has been unfailing, and in recent years has even increased. The present paper focuses on inbound open strategies and reviews various approaches (transaction costs, competences, open innovation) dealing with firms´ decisions about these strategies. The different approaches result in different conclusions about the optimum level of openness. The different approaches are tested empirically taking account of the different degrees of openness (closed, semiopen, open, ultraopen) and their effects on sales of new–to-the-market products, and using a panel of Spanish firms from a CIS-type survey for 2004-2008. Our results show that closed and semiopen strategies are the most common among Spanish firms and that open strategies produce the best performance, while semiopen strategies are more effective than closed ones. These results hold across different subsamples based on firm size and industry, and are robust to different ways of defining the indicators and to different estimation methods.open innovation strategies, collaboration, transaction costs, competences, CIS surveys, R&D, technology policy

The Response of Firms' Leverage to Uncertainty: Evidence from UK Public versus Non-Public Firms

This paper empirically investigates the effects of uncertainty on firms' leverage. The analysis is carried out for a large panel of public and non-public UK manufacturing rms over 1999-2008. The empirical results provide evidence that firms use less short-term debt as they go through periods of high uncertainty. The leverage of non-public firms is more sensitive to idiosyncratic uncertainty in comparison to their public counterparts, yet macroeconomic uncertainty a ects both types of firms similarly. We finally end our investigation showing that the total impact of either type of uncertainty on firms' leverage is related to the amount of the cash buffer each firm carries

The effects of financialisation and financial development on investment: Evidence from firm-level data in Europe

In this paper we estimate the effects of financialization on physical investment in selected western European countries using panel data based on the balance-sheets of publicly listed non-financial companies (NFCs) supplied by Worldscope for the period 1995-2015. We find robust evidence of an adverse effect of both financial payments (interests and dividends) and financial incomes on investment in fixed assets by the NFCs. This finding is robust for both the pool of all Western European firms and single country estimations. The negative impacts of financial incomes are non-linear with respect to the companies’ size: financial incomes crowd-out investment in large companies, and have a positive effect on the investment of only small, relatively more credit-constrained companies. Moreover, we find that a higher degree of financial development is associated with a stronger negative effect of financial incomes on companies’ investment. This finding challenges the common wisdom on ‘finance-growth nexus’. Our findings support the ‘financialization thesis’ that the increasing orientation of the non-financial sector towards financial activities is ultimately leading to lower physical investment, hence to stagnant or fragile growth, as well as long term stagnation in productivity